International Seaways, Inc.

Good morning, and welcome to the International Seaway's first quarter 2020 earnings conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press star then two. Please note, this event is being recorded. I would now like to turn the conference over to James Small, General Counsel. Please go ahead.

Thank you. Good morning, everyone, and welcome to International Seaway's earnings release conference call for the first quarter of 2020. Before we begin, I would like to start off by advising everyone on the call with us today of the following. During this call, management may make forward-looking statements regarding the company or the industry in which it operates. Those statements may address, without limitation, the following topics. outlooks for the crude and product tanker markets, changing oil trading patterns, forecasts of world and regional economic activity and of the demand for and production of oil and other petroleum products, the effects of the ongoing coronavirus pandemic, the company's strategy, purchases and sales of vessels and other investments, anticipated financing transactions, expectations regarding revenues and expenses, including vessel, charter hire, and G&A expenses, estimated bookings and TCE rates for the second quarter of 2020 or other periods, estimated capital expenditures in 2020 or other periods, projected scheduled dry dock and off-hire days, the company's consideration of strategic alternatives, the company's ability to achieve its financing and other objectives, and other economic, political, and regulatory developments around the world. Any such forward-looking statements take into account various assumptions made by management based on a number of factors, including management's experience and perception of historical trends, current conditions, expected and future developments, and other factors that management believes are appropriate to consider in the circumstances. Forward-looking statements are subject to risks, uncertainties, and assumptions, many of which are beyond the company's control, which could cause actual results to differ materially from those implied or expressed by those statements. Factors, risks, and uncertainties that could cause international seaways actual results that differ from expectations include those described in our annual report on Form 10-K for 2019, in our quarterly report on Form 10-Q for the quarter ended March 31, 2020, and in other filings that we have made or in the future may make with the U.S. Securities and Exchange Commission. With that out of the way, I would like to turn the call over to our President and Chief Executive Officer, Ms. Lois LeBrock. Lois?

Thank you very much, Jane. Good morning, everyone. Thank you for joining International Seawaste Earnings Call to discuss our first quarter 2020 results. Before we get into our quarterly results, please turn to slide four, where we'd like to talk about the coronavirus. Amid an unprecedented health crisis, we want to provide an update on the steps that we have taken to ensure the safety of all of our employees. both onshore and at sea professionals. Regarding our crew, we have implemented strict measures on all of our ships to keep our seafarers safe and healthy. This includes daily temperature checks, personal protective equipment such as goggles, gloves, masks, and we minimize the number of people that are boarding our ship. While global travel restrictions are making crew changes difficult, we want to thank our seafarers for their dedication and their commitment to adhering to the highest levels of professional standards. We continue to support industry efforts to designate seafarers as key workers. This would enable our seafarers to more freely travel to and from the ship and to their homes and their families. Onshore, with our employees all working remotely since March 16th, advanced planning has enabled our business to continue to run smoothly. With 24-hour IT support and remote connectivity, we continue to have all of our commercial, our technical operations, finance, and administrative departments fully functioning. We completed the quarterly close remotely, and all SEC reporting requirements were done on time. And we sincerely thank all of our staff for all of their hard work and their efforts. Lastly, although we have faced disruptions and delays, there have been no significant cost increases as of yet due to COVID-19, in spite of the challenges that we have faced. This includes vessel sire inspections, which are challenging to arrange with major oil customers, other inspections, which are becoming increasingly difficult, the transport of spare parts, which takes longer, and dry dockings and scrubber installations, which cannot be completed as quickly. due to shortage of staff in the yard. As we continue to operate in a COVID-19 environment, our priority remains ensuring the safety of our onshore and at sea professionals and providing safe, reliable service to our leading energy customers. If you'll turn to slide five, we review our first quarter 2020 highlights and our recent accomplishments. Seaway's disciplined and balanced approach to allocating capital combined with our success capitalizing on the current robust tanker market. And this has served us well in the first quarter. We continue to focus on creating lasting value for our shareholders. We highlight our success executing a proven capital allocation strategy during the first quarter. We execute it on four distinct fronts. Number one, we successfully refinance. $380 million of higher-cost debt. When you combine the savings from this refinancing with the savings we achieved from the prepayment of $110 million of debt that we retired in the fourth quarter, we have reduced annual interest expense by $25 million, and we have transformed our capital structure. Number two, at a time when when we had maintained one of the lowest leverage profiles in the public shipping sector, our balance sheet strength and our strong cash position enabled us to shift priorities and begin to return capital to shareholders. During the quarter, we initiated a $0.06 per share quarterly cash dividend, and we repurchased $10 million of our shares. Based on our stock valuation relative to our NAV, we believe this represents an attractive opportunity for C-Ways to further unlock value. Our priority is to optimize how we allocate our capital throughout the cycle. In addition to our regular quarterly dividends, we will continue to consider all of our options to unlock value for shareholders as we did during the first quarter. Number three. We repaid the outstanding balance on our revolver, which now provides 40 million of additional liquidity, which is important. This can be used opportunistically to take advantage of accretive opportunities in the future, and it's important when we are operating in periods of high volatility. Number four, consistent with our focus on strengthening our earnings power and further modernizing our fleet, we took delivery of an LR1, the Seaways Guayaquil, just ahead of the market recovery. This ship will trade in our Panamax International joint venture that has consistently outperformed the competitors in the marketplace. We also sold two older Afromaxis during the quarter, one of which delivered in the first quarter and the other, which is expected to deliver to the buyers in the third quarter, further improving the age profile of our fleet. Moving to the next bullet, the rate environment has continued to strengthen in the second quarter. And with our sizable fleet of crude and product carriers and significant exposure, not only to the VLCC market, but also to the mid-sized sectors, Afromaxis, Panamaxis, and MRs, we have captured this market strength, which will positively impact our earnings going forward. In addition to strong second quarter spot bookings to date, which Jeff will discuss later on in the call, we capitalized on the high rate environment by entering into a number of very favorable time charters for periods ranging from seven months to 36 months with major oil producing and trading companies. Specifically, in April, we executed a three-year VLCC time charter for $45,000 per day. and another time charter for one of our 18-year-old VLCCs for one year at $53,000 per day, locking in a very high return on this age shift. We also executed two seven-month VLCC time charters at an average rate of $100,000 per day, with the vessels scheduled to deliver in May. We are pleased to lock in these attractive rates, and all together with our joint venture income, These time charters reduce the fleet-wide break-even on our spot revenue days to $16,000 per day over the next forward 12 months. While we anticipate current market strength will persist, these longer-term charters executed at elevated rates ensures our revenue is optimized throughout the cycle. Moving to the last bullet. Our substantial operating leverage was evident during the first quarter, and we posted the strongest quarter since inception over three years ago. We earned a net income of $44 million, excluding items related to asset sales and debt refinancing, or $1.49 per share, our highest quarterly earnings per share as a public company. Our first quarter adjusted EBITDA with $74 million. This represents a year-over-year increase of $27 million. In terms of our strong liquidity position, at March 31st, we had $150 million in total liquidity, which includes the $40 million undrawn revolver. Turning to slide six, we provide an update on oil supply and demand. Due to the abrupt halt to large segments of the global economy, in response to COVID-19 while the world shelters in place. We have seen a significant decline in oil demand. The IEA forecast of global demand losses have been 29 million barrels per day for April and 9 million barrels per day for 2020. On the supply side, after OPEC and Russia failed to agree on cuts and Saudi Arabia announced an increase in production in March, OPEC Plus reached an agreement in April to curb production by approximately 11 million barrels per day beginning in May. With limited global demand, oil prices dropped precipitously in April. As a result, oil storage facilities on land are filling fast, leading the tanker market to bridge that gap as part of the solution. Tanker owners are currently benefiting greatly from the storage of oil and historically low oil prices. First, delays in congestion at discharge ports where there is inadequate storage space to accept cargo has created a ship supply shortage at load ports. This supports the elevated rate environment. Second, we're in the midst of a strong oil contango, which makes it profitable for traders to store oil, creating demand for tankers to serve as floating storage. This has the effect of further reducing ship supply, as seen in the chart on the right-hand side of the slide. This pushes rates higher. According to Reuters, there are currently about 160 million barrels being stored on ships as of mid-April. On slide 7, we provide an update on ship supply. The overall tanker order book remains historically low. Only six Vs have been ordered year-to-date in 2020. And 31 were ordered in the full year of 2019. Uncertainty regarding the current market as well as decarbonization and suitable propulsion systems to meet decarbonization goals and targets has tempered ordering. Ship supply also continues to be limited by longer installation times for scrubbers, as well as delayed Chinese new building deliveries as yards struggle with labor shortages. Moving to the lower half of the slide, we note that the global VLCC fleet continues to age, as evidenced in the chart at the bottom right. Out of 822 VLCCs, nearly 200 ships are over 15 years old. This is the age at which vessels become significantly more expensive to operate and have special surveys every two and a half years. Additionally, as ships now reach ballast water treatment deadlines, even greater capital expenditure is required. Based on these dynamics and the limited scrapping activity last year and into 2020 due to the market recovery, the potential for scrapping has been building. while there have been no vessels scrapped in 2020. If rates moderate, scrapping is likely to increase based on the aging fleet. Finally, I want to provide an update on our 10 VLCC scrubber program. To date, we have completed the installation on five of our modern VLCCs. Of the two ships that are presently in the yard undergoing conversion, one will sail this weekend, and the second will complete her scrubber installation end May, early June. Of the three remaining VLCCs in the program, we have decided to shift those installations into 2021 to alleviate installation challenges related to the COVID-19 pandemic. This better aligns the installations with the vessel's natural dry dock dates and also allows us to take advantage of the present strong market conditions. I'll now turn the call over to Jeff to provide additional details on the fourth quarter results.

Thanks, Lois, and good morning, everyone. Let's move directly to reviewing the first quarter results in more detail. But before turning to the deck, let me quickly summarize our consolidated results. In the first quarter, we achieved EBITDA of $74.2 million, and as Lois mentioned, this was our highest quarter ever. Net income for the quarter was $33 million, or $1.12 per diluted share, compared to a net income of $10.9 million, or $0.37 per diluted share in the first quarter of 2019. Excluding the impact of a $2.8 million gain on sale of vessels, $12.5 million of write-offs of deferred financing costs, and a $1 million loss from the extinguishment of debt, net income was $43.7 million, or $1.49 per diluted share. Now, please turn to slide nine. I'll first discuss the results of our business segment beginning with the crude tanker segment. TCEs for the crude tanker segment were $89 million for the quarter compared to $73 million in the first quarter of last year. This increase primarily resulted from the impact of higher average budget rates in the BLCC, Suezmax, Afromax, and Panamax sectors. Turning now to the product carrier segment, TCE revenues there were $31 million for the quarter, compared to $21 million in the first quarter of last year. This increase primarily resulted from the impact of higher average daily blender rates by the LR, LR2, and MR fleets. Turning to revenues, overall, as reflected in the chart top left, consolidated TCE revenues for the first quarter of 2020 were $120 million compared to $94 million in the first quarter of 2019. This increase was principally driven by substantially higher average daily rates earned across the crude and product carrier segments this quarter compared to last year's first quarter. Looking at the chart on the top right of the page, adjusted EBITDA was $74 million for the quarter compared to $47 million in the same period of last year. Again, this increase was principally driven by higher daily rates. On the bottom half of the page, we look at the results sequentially, that is, quarter to quarter. Consolidated TCE revenues and adjusted EBITDA for the first quarter were up in the fourth quarter, increasing by $2 million in each case. Turning now to slide 10, we provide a Q1 rate review and Q2 look forward. I will now discuss our bookings for Q2 thus far, which are significantly higher relative to the first quarter based on the strong rate environment. First, we booked 71% of available Q2 spot days for our VLCCs, and an average of approximately $91,000 per day for our modern vessels, and $88,000 per day overall. 58% of available Suezmax state spot days have been booked in an average of approximately $63,000 per day. 63% of available APRMAX or LR2 spot days had an average of approximately $40,600 per day, And 51% of available Panamax LR1 spot days and an average of approximately $34,000 per day. On the MR side, we booked 42% of our first quarter spot days and an average of approximately $20,000 per day. Now, if you would turn to slide 11, talking about our break-evens. The cash cost TCE break-evens for the 12-month ended March 31, 2020 are illustrated on this slide. International Seaway's overall breakeven rate was $20,000 per day for the 12 months ended March 31, 2020. These rates, as always, are the all-in daily rates our own vessels must earn to cover vessel operating costs, dry docking costs, cash G&A expense, and debt service costs, which means scheduled principal amortization as well as interest expense. Of note, taking into consideration distributions from our FSOJV, the overall breakeven rate for the company drops to $8,800 for that period. Now, we've included on the far right side of the bar chart the all-in daily break-even rate for the forward 12 months ending March 31, 2021. We expect our overall break-even rate to be $21,500 per day. Taking into consideration the contributions from our FSOJV and our four time charters, the overall break-even rate will drop to $16,000 per day. At this time, I'd also like to reaffirm cost guidance for the year for your modeling purposes. For the remainder of 2020, we expect regular daily OPEX, which includes all running costs, insurance, management fees, and other similar and related expenses for our various classes to be as follows. For VLCCs, $8,400 per day. SuezMax, $7,700. And Passamax, $8,100 per day. Panamax, $7,900. and MRs $7,500 per day. For details on projected dry dock, capex costs, and off-hire days by quarter, please refer to slide 19 in the appendix for an update there. Continuing with cost guidance for your modeling, 2020 interest expense is expected to be $39 million, which importantly is $35 million of cash interest expense. The balance of $4 million consists of $3 million in amortization of unamortized discounts and deferred fees, and $1 million, which relates to a mark-to-market change on an interest rate collar to its modification and redesignation as a cash flow hedge. Both of those are non-cash items. Additionally, our debt calls for $20 million in scheduled quarterly principal payments beginning in Q2. For 2020, we expect cash G&A to be in the region of $23 million, and a total of 28 million non-cash items, which is relatively in line with last year. Finally, we expect $5 million in equity income, about, and about $19 million for depreciation and amortization per quarter. Now, if we could turn to slide 12 for our cash bridge, moving from left to right. We began the quarter with a total cash and liquidity of $200 million. During the quarter, we generated $74 million of adjusted EBITDA. This amount includes $5 million in equity income from the JVs, which is non-cast, so we therefore deduct it to reach the cash figure, but then add back the cash distributions from the JVs, which were $3 million in the first quarter from the FSO JV. Moving along, we expended $20 million on dry docking and CapEx. We received $14 million in proceeds from sailed vessels. and we expended $17 million toward the purchase of an LR1 vessel, the Seaways Guayquil. Cash interest and principal payment on our debt was $18 million. And finally, taking into account the $40 million of net fuel averaging comprising $20 million from the refinancing and a $20 million repayment over a Q1 revolver draw, along with $12 million cash returned to shareholders, The net result is that we ended the quarter with approximately $110 million of cash and $40 million of undrawn revolvers, giving us total liquidity of $150 million. Now moving to slide 13 to just briefly talk about our balance sheet. As of March 31st, we had $1.7 billion of assets compared to $543 million of long-term debt. In addition, as mentioned, we had a $40 million revolving credit facility that remained undrawn revolvers. as of March 31. As you can see on the right-hand side of the slide, our total debt to capital stands at 33%, while our net loan devalue of our conventional fleet alone stands at just over 40%. Now, turning to slide 14, I'd like to highlight the sustainability-linked pricing mechanism included in the loan facility, which we closed in January. We're very pleased about this feature, as it is the first of its kind for a publicly-listed tanker owner, and has been certified by an independent leading firm in ESG and corporate governance research, ensuring that it meets sustainability-linked loan principles. The adjustment in pricing will be linked to the carbon efficiency of the international seaways fleet as it relates to reductions in CO2 emissions year over year, such that it aligns with the International Maritime Organization's 50% industry reduction target in greenhouse gas emissions by 2050. The targeted admissions reductions follow the trajectory outlined in the Poseidon Principles, a global framework used by financial institutions to assess the climate alignment of their shift finance portfolio. We are truly pleased to work with a banking group that supports their goals and ours. If we meet the targets in future years, we'll receive a modest discount or we'll pay a modest increase if we don't. That concludes my financial remarks, so I'd now like to turn the call back to Lois for her closing remarks.

Thank you very much, Jeff. If you could please turn to slide 16, we just want to reiterate some of the highlights from the first quarter. We continued to make progress effectively allocating capital to unlock shareholder value and successfully take advantage of the current robust tanker market. We transformed our capital markets, completing the refinancing of $380 million of high-cost debt in January. This reduced annual interest expense by $25 million and enabled us to maintain one of the lowest leverage profiles in the public company shipping sector. As a result of our balance sheet strength and substantial cash positions, we continued to execute our disciplined and balanced capital allocation strategy, which included initiating a regular quarterly cash dividend of $0.06 per share and opportunistically repurchasing shares in the first quarter. We purchased an LR1, the Seaways Guayaquil, strengthening our earnings power. And we sold one older Afromax during the quarter and scheduled the sale of another older Afromax to take place during the second quarter or third quarter, further improving the age profile of our fleet. Second, as the rate environment has continued to strengthen in the second quarter, with our sizable fleet of crude and product tankers and significant spot exposure, We captured the market strength and are well positioned to generate substantial earnings moving forward. In addition to strong second quarter bookings to date, we capitalized on elevated rates by entering into a number of highly profitable time charters, ranging from seven to 36 months, While we anticipate continued favorable conditions for tankers, it's important that together with our joint venture income, these time charters reduce the fleet-wide break-even on our spot revenue days to $16,000 per day over the next 12 months. Finally, we believe our first quarter results, highlighted by our highest quarterly earnings per share as a public company, demonstrate Seaway's strong prospects in a robust rate environment. We entered 2020 with a substantial cash position, and ended the quarter with over $150 million in total liquidity, including $110 million of cash. We have always managed our business for the long term, and our recently executed time charters at highly attractive rates, combined with our sizable fleet and our significant exposure to V's, Suez, Afra, Panamax, and MR's, ensures Seaway's position to generate substantial cash flow throughout the cycle and create lasting shareholder value. Thank you very much, and we can open it up to questions.

We will now begin the question and answer session. To ask a question, you may press star then 1 on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then 2. At this time, we will pause momentarily to assemble our roster. The first question comes from Randy Givens of Jefferies. Please go ahead.

Howdy, Lois, Jeff, David. How's it going?

How are you, Randy?

All doing well. Doing well. Yeah, you know, congrats again on the record quarter. It's pretty clear that the second quarter will be another record, so keep it going. Now, your balance sheet. Obviously already very strong in this environment. You're producing a lot of free cash. So what are your preferred uses of this cash going forward? Now, just so you know, I'm out of my chair giving you a standing ovation for the share repurchases. So should we expect that to continue now that the shares are still at pretty discounted levels?

Jeff, it's your favorite topic.

Come on, Jeff.

Nothing I like talking about better than capital allocations. It's all good. So thank you for that. Look, I think as we look forward, we start by looking back. I mean, nothing tells the story better than Q1. You know, because we got the refinancing done, it gave us flexibility, and we had a strong balance sheet and liquidity in Q1, we were able to do all four ways that you really can do capital allocation of cash. and do them concurrently in the same quarter. We bought a vessel as well as selling to all the vessels. We deleveraged substantially, I guess we talked about. And we've returned cash to shareholders two ways. We put in the fixed dividend, which we'll keep quarter to quarter, regular. And we bought back $10 million of shares. Thank you, Matt. very much. So I think we feel good about being able to do all those. I don't think it's anything like sequential. We can do them all together. So we don't have any immediate plans to buy another share. I think our deleveraging is proceeding along quite well under the new schedule that we outlined. So with the liquidity and the balance sheet we have, we feel comfortable continuing on. And I'd certainly say that the you know, share price certainly still looks attractive for repurchasing.

Okay, I'll accept that as a yes. And then now, second question, thank you for all the details on your time charters on slide five, like the transparency there. So can you give us a sense of the liquidity of that market? You know, for example, why lock in four charters instead of maybe eight or instead of just staying full spot? So how do you balance that? And then what are the current kind of six-month or seven-month or one-year time charter rates that you're seeing?

Okay, good question, Randy. So you really see the customers responding very quickly to where Contango is at at any one point in time. And it takes a little bit more patience and effort to execute a three-year deal in this environment than it does a seven-month or a year deal. So, you know, we simply have been layering in a portfolio approach across the ship. And we still think that, you know, going forward, Contango has reduced, but not dramatically. It's still pretty significant. According to a lot of the oil pundits, it looks like there will be still significant in May, a lot more supply than there is demand. So we look forward to additional opportunities to take advantage of as that materializes. And, you know, right now I would say that the tanker market and the oil market is adjusting to a new level, and then we'll see whether or not that's going to run up again depending upon the volatility, which is very significant in oil prices today.

Okay. Can you give us a kind of range maybe for current seven-month or one-year time charters?

For probably a six-month charter, you're probably around, you know, $55,000, $60,000 per day today. But I think, you know, as we watch the contango and if that increases even a little bit, then you will really see additional vessels being taken.

Perfect. Cool. Well, I'll turn it over from there. Thank you so much for the time. Thanks, Randy.

The next question comes from Ben Nolan of Stiefel. Please go ahead.

Hey, guys. So I have a couple, but we'll start with some of your LRs. At the moment, larger product anchors trading is pretty healthy from what I've seen. They're trading at a pretty healthy premium, too. those in the crude market. Just curious where you guys are positioned in terms of how we should think about the earnings power for those vessels in the back half of the quarter here.

Yeah, Ben, great question, and I hope you're well. We have one LR2 that's trading clean, and she is on a very lucrative voyage at present, so we expect her to earn well, but we put her in with the Afromax sector. So she is trading clean, will remain so, and we look for that to be a high earnings on her. And on our Panamax fleet, the vessel that's traded clean is actually the Guayaquil that we just took delivery of, and our intention is to continue to trade her clean in this prompt, very strong product environment where you're seeing the storage now being taken on product carriers.

Okay. And the rest of the, let's say, LR1s are all trading as Panamaxes in the dirty trade, yes?

That's correct. That's correct. But I would just highlight then that in Q1, the spot market for our vessels was $39,000 per day on the Panamaxes, which probably stacks up stronger than anybody that you're going to see out there. And Q2 today is $34,000. I think that the Panamax International Joint Venture stacks up very strongly on spot rates.

Yeah. And that seems like it is always the case for you guys, is your, you know, real niche, I think. But also, just sort of for modeling purposes, I believe there's a handful of, MRs that are scheduled to or maybe have already come off charter that you were chartering in. Is that correct? And any thinking about, you know, keeping the size of that position higher via, you know, either buying assets or chartering in more?

So you're correct. We had seven MRs operating. We now have five. Two vessels were removed from service due to COVID. complexities with the third-party providers. And, you know, we are enjoying that market. I think the almost $21,000 per day in the first quarter for our MRs was quite strong. And We're enjoying that sector. Whether or not we would buy additional vessels, I think we'd be careful right now with where vessel values are. So that might not be the first thing we do, but we would add to our trading strength and our trading platform as we see opportunities.

Okay. And then lastly for me, and I'll turn it over, you mentioned on the video five scrubbers installed, two in process, and then you shifted three to 2021, a couple of things on that. How should we think about the CapEx cadence with respect to those? And are you pretty firmly committed to going ahead and installing scrubbers on those remaining three? Or is it, you know, more of a wait and see?

So, you know, if you go to page 19, Ben, you'll see a pretty healthy breakdown of the capex. No, it's okay for Q1 and Q2. So we have $9 million in Q2 for capex on the VLCC sector. And when you think about it, a lot of our challenges are behind us. You know, indeed, the coronavirus hitting in China, you know, really made it difficult for laborers to get to the yards and get to work on outfitting the scrubbers. So that did – we did have a pretty big challenge here in Q1. The guys worked through that amazingly and very diligently and turned those shifts out. They're all working very well. So we got our eyes forward. And on the remaining three, you know, we will – See how everything develops. Our present intention is to install them when it is their natural dry dock date. And, you know, then you're not taking them out of service for additional time. You're just adding that job onto the regular dry dock. So that's our present intention. And then let's see how the world normalizes.

Okay. All right. That's very helpful. Appreciate it.

Thanks, both. The next question comes from Omar Nocta of Clarkson's Plateau Securities. Please go ahead.

All right. Thank you. Hi, Lois and Jeff.

How are you?

I'm good. Thank you. And I apologize maybe for this open-ended question I'm about to ask. But maybe just taking a step back and thinking about international seaways. You know, you guys have been fairly conservative on the dividend, conservative on the buyback, conservative on acquisitions. but obviously very aggressive on repaying debt and building free cash, which is obviously very logical. It de-risks the platform and gives you tons of flexibility going forward. And obviously with the direction of the market as it is now, you're going to be getting a whole lot more cash, and you've obviously just finished your refinance. So when we think of international seaways and what it's building to, how do you see things playing out from here? Are you playing the long game very patiently, And what I mean is, as we think about 2021 and beyond, do you see the company preparing itself for a large-scale splash into a larger company? Or do you feel that where you stand now that you'd like to keep it that way? I know that's a big question, but just kind of get your thoughts on that.

It's an opportunity, Omar. So I would definitely say that C-Ways and our management team, Jeff and myself, we are playing a long game. We are running this company to be prepared for the market in all environments, and we think that that is a real strength. The team, you know, we sold the LNG for a great $123 million in Q4, immediately paid down debt. The finance team immediately moved to refinance, and that was locked down and then executed in January. That was done well before coronavirus was on the horizon, but is just an example of the type of moves that we want to make to give our shareholders very good value and see ways And we continue some of the moves, you know, are individual, such as buying a ship, selling a couple here, but we're never idle. And we continue to improve our earnings power, our fleet profile, and we want to keep moving up the leaderboard at Seaways.

Thanks. I think that's a good answer. I appreciate that. And I had a follow-up on a comment you made, I think it was to Ben's question, the You said we need to be careful where asset prices are. Just wanted to get a sense of what you meant by that. Do you feel that asset prices at this point are maybe too high? I guess when we think about where rates are and TCs, especially the ones you've entered into, it seems that they're relatively low, or at least the cash flow yield is high. Yeah, I just wanted to ask what you meant.

Yeah, no, absolutely. If you look at the shifts that we bought, the $650 million that we spent, we were able to do that really at not perfectly the cyclical bottom, but pretty close, right? So asset values have come up somewhat, not dramatically, but as you look at where asset values are today, you know, whether or not we would make a huge splash to buy a lot of ships at this exact moment, we might wait and be very patient as the cycle plays out. And, you know, maybe in a year and a half, you know, when asset prices are lower, as we go through the cycle, you know, take our opportunities when they come to us.

Yeah, that's fair. And then maybe just switching gears, I just have one question on the FSOs. It's been a while since we maybe thought about that. I think there's still another couple of years of charter left on those. With where oil prices are, have you gotten any sort of feedback from the charter on the potential extension or risks to extending that work? Anything on that you can comment on?

Well, I would simply say, Omar, that, you know, as you know, the FSOs are offshore, and those fields continue to operate, and those two FSOs are fully utilized on the Al-Shaheen field and continue to operate without any off-hire. They indeed do have about, you know, not quite two and a half years left on the existing charter. Those charters go through 2022 Q3. And so we look forward to conversations with our customer, and, you know, those vessels are ideally suited for that field, and it continues to be highly productive. So in the future, we look forward to conversations, and when we can share more, we will.

Okay. But they haven't necessarily – have you noticed any sort of change in how they're using those shifts, whether they're storing less or anything along those lines?

You know, we actually, you know, had a recent opportunity where they really took advantage of the availability of the 3 million barrels, which is unique to those two FSOs. So they are really fully utilizing those vessels.

Okay. All right. Thanks, Lois. Appreciate it.

Thank you, Omar. Hey, Omar, before you go, I just wanted to maybe add on to Lois' answer about the long game. You know, we're obviously – not in the same room in this environment, but I wanted to say that indeed the case, and you mentioned that we're sort of aggressive on leveraging legal conservative in other areas. Well, I think I'd just highlight what I said a little earlier on about we're proud of the fact that we were able to do all these major, four major cash allocation, capital allocation choices in Q1 and continue to see that as a possibility. And One of the things I like about net deleveraging is that it's just all optionality, right? So, you know, that puts you in a good place now and it still leaves you with your options for whether it's, you know, buying assets when they become more attractive or whether it's further returning cash to shareholders. You know, it doesn't preclude any of those future options. So that's probably why it comes up first for us. Hope that helps.

It does. Yeah, thanks for that, Chuck. Appreciate it. The next question comes from Liam Burke of B Reilly FBR. Please go ahead.

Yes. Thank you. Good morning, Lois. Good morning, Jeff. Good morning, Liam. Lois, on the macro, you highlighted the fact that there are older VLCCs in the global fleet. A lot of them now are being used for floating storage. Would you anticipate as some of the longer-term benefits, the supply side of the equation, as these floating storage VLCCs come offline, do you expect them to be scrapped rather than come back into the fleet?

You know, Liam, it's all going to depend upon the market timing, and we all watch that, you know, very carefully. So in this kind of an environment, the owners would be very reluctant to scrap at high levels. But also you've seen the scrap yards be closed due to coronavirus and a lot of challenges on that front. You know, as let's say, you know, storage unwinds maybe in 2021, you know, depending upon how quickly demand is able to recover will determine what the rates will be and whether or not there will be opportunity for those older vessels or whether they will then go ahead and scrap. and then that will create a healthier market going forward.

Okay. And looking at the product tanker side, are you anticipating the storage requirements for refined products to help the longer-term or sustained rates in that area of your fleet?

You know, yes would be the short answer, and I think that you have all different – all different refineries around the world and every producing country trying to calibrate and match where demand is at. So, you know, when you see refineries running too high, then you see excess product. When you see refineries running, say, too low and production still high, then you see it on the crude side. So we expect it really to be across the space. And there are new building vessels that are VLCC, Suez Maxis, that are indeed storing or will be storing products as well. So, you know, there's really a storage across the space in the tanker sector right now.

Great. Thank you, Liz.

The next question comes from Greg Lewis of BTIG. Please go ahead.

Yes, thank you, and good morning, everybody. Good morning. Lois, I just wanted to ask your question, and it's kind of been touched on a little bit, you know, through the capital allocation kind of thoughts. So, you know, as we look across, you know, the international seaways fleet, you know, it's a mixed fleet. There's some smaller vessels, some younger vessels across asset classes. As we look at some of these older vessels, and really what I'm getting at is fleet renewal, and you've talked a little bit about asset prices, but really the older vessels in any up cycle, which is what we're in right now, tend to increase more in value on a relative basis than newer vessels. So is there any way to think about, and I think some of your peers are trying to do this, is there any way we should be thinking about fleet renewal in terms of you know, maybe not going out and buying a block of vessels, but in actuality, maybe taking some of those older ships and, you know, selling them. And that's, you know, more than enough equity required on buying a new ship. It's kind of the problem that you're running. And first of all, is that a strategy? And then I guess my follow-up on that is, is the problem that there's just not a lot, there's just no modern-ish tonnage that you guys have interest in buying? I'm just trying to understand, If that's a plan, if it is a plan, what's kind of holding that back?

Well, you know, certainly a plan is, you know, when it is true that some of these older vessels appreciate more. So I'll give you a double response. You know, as you see on our Afromaxis, some of those 01, 02 belts, we're moving those out, took this opportunity to do that. Then on some of our VLCCs, you know, being able to fix a year charter on Tanabe, which is 18 years old. significantly brings in so much cash flow that you're able to capture that and that really, you may be able to do that again and then dispose of that vessel after that. So you're really defraying any of your downside risk on a vessel like that. So we look at across the spectrum, where can we capitalize on realizing value when we perceive we're in part of the high periods And then, you know, we will look for value, you know, where we see it. We would not – it's unusual where we would sell older vessels and then buy a newer ship simultaneously. We try to be a little bit more opportunistic than that. But you're not off the mark in your general approach.

Okay, great. And then just as I think about – you know, the Panamax pool, just, you know, looking at some of those ships and, you know, you started the renewal process there. Is there limitations that would, I mean, I guess what I'm wondering is, yes, it's a Panamax pool, but would there be ways to kind of renew that pool with other size vessels, i.e. maybe scaling up to an LR2 or an MR, or is that not really the way that there's limitations around that trade that would prevent that from happening?

Well, the key thing, most of the Panamax international fleet, all are dirty. And those are trades that, you know, go back and forth easily between North and South America. There's a lot of Panama Canal transits. And while an Afromax can transit the Panama Canal at this time, and they often do, the Panamaxes are pretty flexible. They use the old locks. It's really ideally suited for this trade, and those are dirty ships, so you really wouldn't want to put an MR in there, which is mostly clean-based trade. So, you know, it's a trade that's well-established and that we continue to persist on.

And then just following up on that and just, you know, like you were mentioning earlier that, hey, vessels get over 15 years old. That becomes somewhat of an issue. Really, given the niche nature of this trade, the older vessels in this trade maybe aren't as – it isn't as big a drag in the Panamax trade as it might be in the broader international market. Is that a fair statement?

Well, and we made a lot of investment in 2019 on our Panamaxes and lined them up. We expected 2020 to be a very good year, and those ships are earning really well in that fleet right now.

Thank you very much. Hey, Greg. Okay, thanks. Greg, can I just follow up on the question you started with? Are you still there? Please do. Yeah. Yeah. I think you would note that we have been selling selectively older ships. We mentioned two on this conference call, and not to mention non-core assets like the LNG joint venture last year. So we definitely see that as part of the plan as the way to renew and grow our fleet is to sell non-core or older assets. So that's going to continue. That makes sense. You know, if you look at the name of the new facility we put in place, it part of it's called the core and the other is called the transition facility, which is, you know, you didn't need another clue. It tells you that it's shorter-term lending for vessels that are in a transition phase to head out eventually. Because our thought or strategy long-term kind of goes to Omar's question, too, is that you want to be able to fund your renewal and a modicum of growth from a combination of operating cash flow and the disposal of vessels when they get to the right time. So if you have one with lower leverage prudently, you can meet that objective. And it comes episodically, as we know, because you don't make acquisitions typically every year. You wait for when the assets are low. So you've got to have a lot of dry powder for that. But the idea is offering cash flow, disposal of older vessels or non-core assets can support your growth, your renewal in growth alone without having to go outside for cash.

Okay, perfect. Hey, guys, thank you very much.

The next question comes from Jay Mintzmeyer of Value Investors Edge. Please go ahead.

Good morning, Lois. Good morning, Jeff. Congrats on a great quarter.

Thanks, Jay. How are you?

I'm doing all right. It's good to see these results flowing in, even if the market doesn't appreciate them. I do want to highlight, I think, the strong point of the call was the two fixtures for seven months at $100,000. Look, there's a lot of pessimism in the market, but we've seen Occidental taking some long-term charters. We've seen Hess recently announcing some charters. You clearly fixed some. Can you talk a little bit about the bid out there for, say, a six-month or 12-month charter? Is that still existent? Is that still strong? Or has that fallen off a little bit with the current spot rates?

I think that – the charterers and the storage potential is taking a little bit of breather at the moment while the market adjusts itself. And now this week you've seen everything steady out and you're starting to see a lot more activity. So what you have to realize is when vessels are – all those charters that were executed were with second half April, first half May dates. So a lot of these vessels are now getting their cargo. But what you're starting to see show up is these, you know, now storing and starting to sit around the world, and that's going to show up in the position list. So we don't think that, you know – We think steadying out between 50, 60 here, that's okay, and we think that there's some runway left in that and that there will be additional storage, and we may start to see that in the coming couple of weeks.

Yeah, we'll have to see how that develops. Of course, the rates have came back markedly, but, of course, compared to historics, they're almost off the charts there. Going to slide 13, you have a good breakdown of your current debt. And as I'm looking at that on the bottom of slide 13, I see one clear facility, a very small one, that is a massive outlier in terms of costs. And I believe it's coming up for a call revision here in June. Any other comments on that facility?

I'll just say that that is unsecured debt, so that is reflected in the cost. But then I will turn it over to Jeff to jump in on that one.

Yeah, sure. Hi, Jay. Uh, yeah, that's the last remaining piece of the, um, patchwork. I almost call it a debt that we did in order to not issue equity when renewing our, uh, our fleet, uh, in, in 2017 and 18. So, uh, it's the baby bond, uh, so-called because it's a smaller amounts than $25 par, uh, and it's lowest notice, uh, unsecured. So, uh, it actually is a relatively attractive rate for unsecured. That said, it is uncallable up until June, so there's no choice about that. But, yes, when we get there, that will be a capital allocation choice. We will have an option if we want to reduce that. So haven't made any decision yet, Jay, but it's definitely one that will come up at the end of June.

Yeah, definitely a good thing to keep watching. One last question. I think we had a good discussion on the call about capital allocation. I did notice you spent $10 million on share repurchases, so good to see that going. I have your current NAB around $32.50, and that's before Q2. That's only Q1 financials. If we add in Q2 cash flow, we're probably well north of $35. But look, I mean, as we're talking right now, I'm looking at your shares, and you put up an amazing quarter, and your NAB did too. DHT did yesterday. And the shares are not trading well. I mean, they're at like $20 flat. So, you know, you're looking at shares that trade at 60% NAV, give or take, maybe a few percent up or down. How do you think about that remaining authorization? You have $20 million left. Is there a way to maybe increase that further, or does that require some sort of like annual meeting?

Lois, you or me?

Yeah, go for it, Jeff.

Yeah, no, absolutely. We have the $20 million authorization that was put in place in the last two years from when it started, so it's got a ways to go. But it's not one, and I know this might be true for some other companies, that's why you're asking, where we have to tie it to an AGM. If we were to run through that authorization, we would go back to our board for a renewed authorization, but that's not a once-a-year thing. It can just be something that we request. So I'd look at it as pretty routine.

Okay, excellent. Thanks, Jeff, for clarifying that. Yeah, you know, I'd hate for you to be in a position where, you know, you get to June and rates are great and the stock, for whatever reason, does not seem to understand that and you run out of authorization. So, you know, I guess that's a luxury problem if you're buying shares at $20, but good luck to you. Thanks again for the good quarter.

Thanks, Jeff.

Thank you. Once again, if you have a question, please press star then 1. on a touch-tone phone. This concludes our question and answer session. I would like to turn the conference back over to Laura Sabrocki, CEO, for any closing remarks.

Thank you so much. Thank you all for joining CUA's earnings call. We will continue to take advantage of every opportunity to create shareholder value, and we really hope everyone on this call and all of your family stay safe and healthy in these challenging times. Thank you very much.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.